SEC Charges Former Head of Investor Relations with Violating Regulation FD for Indirect Selective Disclosure

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On September 6, 2013, the SEC announced that it had brought charges against, and settled with, the former head of investor relations at an Arizona-based solar energy company for alleged violations of Regulation FD. Regulation FD, adopted by the SEC to promote full and fair disclosure, requires registered companies to publicly disclose material nonpublic information that is intentionally or inadvertently disclosed to securities market professionals or shareholders by authorized employees. Review of this enforcement action can provide valuable insights to registered companies regarding Regulation FD compliance.

According to the SEC's order, on September 13, 2011, the head of investor relations (the respondent) attended an investor conference where the CEO of the company publicly expressed confidence that the company would receive three loan guarantees totaling $4.5 billion from the U.S. Department of Energy (DOE), for which the company had already received a conditional commitment. Two days later, the respondent and other executives of the company learned that the company would not be receiving at least one of the guarantees.

On September 20, 2011, a congressional committee sent a letter to the DOE inquiring as to whether the DOE was able to move forward on its conditional commitments, including those to the solar energy company. Shortly thereafter, on September 21, 2011, in response to inquiries from analysts regarding the letter, the respondent created talking points and had phone conversations with approximately 20 analysts and institutional investors in which he emphasized that the company was likely to receive two of the guarantees and unlikely to receive the third, despite being aware that the company had not made any further public disclosure regarding the guarantees. The company issued a press release the next morning announcing its failure to obtain the third guarantee; after the announcement, there was a six-percent drop in the company's stock price.

The SEC alleged that because the respondent "effectively signaled" the company's loss of the third guarantee, he had made an intentional disclosure of material nonpublic information without simultaneous public disclosure of that information — which violates Regulation FD. The respondent agreed to pay $50,000 to settle the charges, without admitting or denying the SEC's findings, and to cease and desist from causing any violations of Regulation FD and Section 13(a) of the Securities and Exchange Act of 1934, as amended.

Notably, the SEC determined not to bring any enforcement action against the solar energy company because of the company's "extraordinary cooperation" with the investigation and for cultivating an "environment of compliance" with Regulation FD. The factors the SEC attributed to its decision not to bring an enforcement action against the company included the company's:

  • immediate discovery of the potential violation and issuance of a press release prior to the opening of the market the day after it occurred
  • self-reporting of the potential violation to the SEC
  • undertaking of remedial efforts concurrent with the SEC's investigation to address the respondent's conduct
  • providing additional Regulation FD training for its employees

To view the order In the Matter of Lawrence D. Polizzotto, Adm. Proc. File No. 3-15458 (Sept. 6, 2013), go to: http://www.sec.gov/litigation/admin/2013/34-70337.pdf